Yoshida in China: Beijing's U.S. investments and economic security

Chinese investment in U.S. companies was "hardly noticeable before, but now it is rising sharply," according to a report to Congress.

NEW YORK – Chinese investment in U.S. companies was "hardly noticeable before, but now it is rising sharply," according to a new report released by the U.S.-China Economic and Security Review Commission.

Should we be worried? Is this some sort of Trojan horse?

I wouldn’t go that far.

The report to Congress, “An Analysis of Chinese Investments in the U.S. Economy,” offers a detailed look at China's foreign direct investment (FDI) in the U.S. and the potential economic benefits.

The cumulative value of Chinese investments grew to $30 billion through the end of 2011, compared to $5.8 billion at the end of 2010. As the chart below shows, Chinese FDI here has been rising steadily over the last decade. What sectors is China targeting with its U.S. investments and what if any strategy can we divine from these statistics?

Beijing “has made a conscious decision to diversify its foreign currency assets into hard assets,” the report explains. This has led to the creation of sovereign wealth funds that make portfolio investments in U.S. equities, private firms and real estate, according to the report.

The Chinese government’s FDI strategy is also shifting. While Chinese leaders previously encouraged investments “almost exclusively toward energy and resource acquisition in developing countries,” it now also encourages “investments in advanced countries,” such as the U.S.

Beijing’s goals for these investments include “securing energy and mineral resources and acquiring advanced technologies in industries where China wishes to leapfrog existing competitors." This strategy falls in line with China’s industrial policy as articulated in Bejing's 12th Five-Year Plan.

The acquisition of advanced technologies reflects China's strategy as a "second-generation innovator" that tailors technologies to its domestic market, then innovates from the ground up through manufacturing advances.

It isn't surprising that Beijing doesn't want to increase the yuan's value. China and the US are intimate financial partners. China owns about $1T in US govt securities (yes, $1 trillion). Increasing the value of the yuan decreases the value of those securities directly. There's an old saying: "If you owe the bank $50,000, the bank owns you. If you owe the bank $50,000,000, you own the bank."

Hey, it's a buyer's market... I think China is being really smart, diversifying assets and buying while stakes are cheap.
I remember when I used to play the board game Monopoly with my sisters, and it used to drive me mad that my younger sister used to buy every single thing she landed on. It looked willy nilly. But lo and behold, she'd win almost every game thanks to that strategy.
You invest your way our of a crisis. You invest to win in the long run. These are two lessons the U.S. would do well to learn. China certainly seems to know the rules....

I also remember the Japan paranoia of the late 1980s along the "The Japan That Can Say 'No'". Japan was a bubble ready to burst. Today, China finds itself in a similar situation as the U.S. seeks to leverage its entrepreneurial advantages.

I remember back when Japan was buying a lot of industries in the US back around 1989 (including the Rockefeller Center!) and it created a lot of paranoia.
Then the Japanese economy collapsed about 7 years later, and they were forced to sell off a lot of their assets at a big loss (including the Rockefeller Center).

Not sure I understand your last paragraph.
In a partnership, both sides have to see a continued benefit. From what you describe here, though, it sounds more like "we are continuing to sell off the farm."
Here's the quote:
"Indeed, economic and energy security appear to be the long-term concerns. For example, the report described Chinese investments in three energy technologies. Eventually, the authors said, production based on the acquired technology was shifted to China."
Of course this makes sense from China's point of view. But what is the long-term prospect for these US industries? IP now owned by the Chinese government?
Ultimately, naturally, the resolution will come as China's labor costs reach closer parity to our own. Either because theirs rise or because ours fall.